UK enhanced annuity sales fell by 29 per cent from a first quarter figure of £847m to £600m in the second quarter this year, demonstrating the impact of the Budget changes in March.
Towers Watson surveyed enhanced annuity providers Aviva, Canada Life, Friends Life, Just Retirement, Legal & General, LV, MGM Advantage, Partnership, Prudential and Reliance Mutual, finding a fall in sales of 34 per cent from the same quarter last year.
The number of new cases in the most recent quarter fell to levels not seen since early in 2010, and at around 12,000 cases, some 40 per cent below the average quarterly figure seen in 2013. Enhanced annuities were first introduced in the UK in 1995, reaching a sales peak of £4.48bn in 2012 before falling to £3.84bn in 2013.
Evelyn Gutteridge, a consultant at Towers Watson, said: “The proposals set out in the Budget are set to greatly increase the flexibility open to consumers and are likely to increase the appeal of alternatives to annuities. It is therefore not surprising that enhanced annuity sales are experiencing declining volumes.
“For many consumers, annuities will continue to play an important role in offering a straightforward way of drawing retirement income in a way that insures against the risk of outliving their savings.
“We therefore anticipate that annuities will continue to be an important part of the retirement landscape, albeit at a lower level.”
Ms Gutteridge added that the firm expects to see significant innovation across the pensions decumulation market as providers respond to the opportunities offered by the Budget.
